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PP-10 Newsroom: Backgrounders

International connectivity – a big issue, involving big money

To the casual observer, the Internet and telephone networks around the world are seen as one. In fact, we take international connectivity of all types for granted. We make and receive calls between fixed and mobile networks, expect the Internet to provide us with a wide variety of complex applications and services, and expect everything to work together, wherever we are without thought to how traffic is channeled across the world.

In fact, this apparently seamless single network – often called the world’s largest machine – is constructed of hundreds of thousands of sub-networks. The world of telecom is fundamentally and irrefutably an interconnected world: operators and service providers connect to users, but they also connect to each other across the globe. In this architecture, networks interconnect with each other in complex ways to achieve the overall goal of seamless connectivity. ITU is at the forefront – particularly in the world of telephony – to ensure that interconnection is achieved properly, reliably, and in a standardized way replicable by others.

Three decades ago, most countries had a single telecommunications administration – often owned by the state. The types of data networking through the Internet and mobile communication we know today barely existed. But an explosive course of deregulation has meant the market has created many thousands of new service providers, and technology has generated a wealth of new applications. All these networks must be interconnected, however. Fixed networks may connect to other fixed, or mobile. Mobile networks may connect to other mobile networks or to fixed networks. Internet networks need to connect everywhere.

Today, relationships between players in the market are much more complex, but they still need to be managed. Networks interconnect on both a national and international level to ensure ubiquitous service everywhere. On a national level, industry rules and national regulations apply. On an international level, the principles are the same, but in the absence of a formal global communications regulator with the power to enforce principles or mechanisms on an international basis, countries and operators must negotiate general principles and agreements with each other for the benefit of everyone.

Who pays?

But it’s a fact of life that when someone, somewhere, uses a telecom service they want and is paying a bill for it, the interconnected service providers involved in that service must also somehow settle the billing issue with each other. The issue may seem arcane, but it is critical, simply because the resulting financial flows are vast: many billions of dollars are transferred around the industry annually –between operators, as well as between countries. Settlement processes are sufficiently complex to warrant that an ITU-T Study Group is assigned to examine tariff and accounting principles on a permanent basis.1

International telephony interconnection and charging have developed largely through governing principles established by the ITU. These principles have led (in most cases) to a structure where interconnecting service providers negotiate on a bilateral basis to manage their accounting arrangements.

ITU is the custodian of international treaty-level instruments such as the International Telecommunication Regulations (ITRs) which are a global binding treaty specifying the type and nature of international connectivity, billing and accounting. The ITU is currently investigating the potential need to update such instruments within a timeframe for 2012. Also of particular focus is the possible updating of the so-called D series2 of Recommendations – effectively a companion to the ITRs – that the ITU-T publishes to standardize international interconnection practices by service providers.

Complications may arise at the international level, especially when networks in developed countries interconnect with those in developing countries. Traffic, demand, pricing, charging and financial flows are not only inter-linked issues, they are also closely linked with the growth in connectivity itself to underserved populations around the world, enabling them to join the digital economy. Some of the key issues that have been mentioned are:

  • High international gateway costs in many countries are a major impediment to development, as they often keep the prices of Internet (and telephony) connectivity offered to consumers high as a result. Lower costs on the other hand could help generate more subscribers, more traffic, larger networks and ultimately more investment, creating a virtuous cycle. In this way, interconnection is linked to network growth, universal service issues and other aspects of what are known as “network externalities”, where network growth benefits each user of the network. But how should service providers be encouraged under interconnection policy to lower charging and tariff regimes across borders?

  • Interconnection methodologies between service providers on the Internet and those on traditional telephony networks have evolved very differently. For all service providers, however, the appearance of Internet Protocol (IP)-based next-generation networks (NGNs) may radically change the network infrastructure picture. NGNs may use different interconnection strategies as a result of improved architectures.

  • The new picture is very complex. An application sought by a user which may appear to be a single entity may in fact involve many different network services in combination, each with its own characteristics. Additionally, charging and accounting methodologies may change, but have potential implications for other aspects of networking such as quality of service (QoS). How should all these factors be assessed?

  • The international connection of mobile networks is also a challenge. Roaming and other charges – particularly in data traffic delivered across borders – remain extremely high in many markets. Meanwhile, mobile termination rates, the charge made by the receiving operator to complete a call, have also been under scrutiny by legislators in the European Union and elsewhere. In this sense, is there a need for regulatory intervention in the international connection of mobile networks? And if so, how could it be regulated?

1 ITU-T Study Group 3: Tariff and accounting principles including related telecommunication economic and policy issues.
2 ITU-T Series D: General Tariff Principles.

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Updated : 2010-09-28